Failed outsourcing projects can cost companies millions in wasted time and resources. If these outsourced projects involve customer service or tech support, a failed project may not only impact your revenues but may also hurt customer relationships. That's why it is crucial that a company puts in place various measures to prevent these failed projects. One way to achieve this is by setting expectations correctly with the service provider before awarding them the project. SLA's provide one of the best and savviest ways of setting expectations.

What is an SLA?

A service level agreement popularly known as an SLA is the part in a contract that specifies and defines what services a service provider should offer and the required level of standard for these services.

Elements of a good SLA

Overall objectives

A good SLA should set out clear goals and the desired outcomes for the service to be provided. For instance, if the main purpose of hiring the service provider is to enable you to access certain skills or technology, save costs or to improve sales, whatever the objective is, it should be clearly stated in the SLA.

Service specification

The SLA should go further to include a detailed description of the services. This means that there should be a description of;

  • What the service is all about
  • To whom it will be provided
  • Where it will be provided
  • When it is required

For instance, if the service is the delivery of a sales report, the SLA should;

  • Define the report
  • State what the report should include
  • State the reports format
  • State how it should be delivered, e.g., by email, in person, or mailbox
  • To whom it should be delivered
  • When it should be delivered and where necessary at what frequency

Performance standards

Taking each service in the SLA into account, you should state the expected standards of performance you expect from the service provider. The standard of performance varies depending on the service being delivered. For instance, if it is a reporting service, the possible performance standard for such a service can be 99.0%. Before outlining a performance standard, take the time to consider it carefully. Most of the time, customers want the performance standards to be of the highest level. On the other hand, the service provider may claim that service levels need to be set calculatingly low to ensure that they are offered at a competitive rate.

However, it is all a matter of judgment, and the customer is advised to consider each level of performance standards carefully, especially when individual services are weighted depending on their business importance. For example, the performance standards and availability of an online service are usually high as it is important for the customer to ensure the constant availability of the service. Other individual services may be less important, and the service levels can be set lower.

Service/compensation credits

For the SLA to have a “bite,” failure to deliver the services or the agreed upon level of standard needs to have a financial consequence for the service provider. This can be achieved through the inclusion of service credits. In essence, whenever the service provider is unable to deliver the expected performance standards, they should pay or credit the customer an agreed amount to act as an incentive for improved performance.

There are various ways to measure these service credits. For instance, if the 99.0% level for reporting is not achieved, the SLA can include a service credit that a specified reduction is a price given for every 0.05% shortfall in performance each week. Alternatively, service credits may be given after every 3 or 4 consecutive failures to meet a service level within a specified period. Overall, the goal is to ensure the credits are reasonable and they encourage the service provider to improve.

Critical failure

Service credits aid in getting a service provider to enhance their performance. But what happens when the service provider falls way below the expected level? To prevent the customer from paying for a service that is unsatisfactory, the SLA should include a critical service level of failure, under which the customer has a right to terminate services. For example, the SLA should state that if the service credits kick in twice or thrice in a row, the customer has the right to terminate the agreement for material breach.

Including these five elements in an SLA can help you set expectations early on. It can also help pinpoint and clarify responsibilities between both parties, facilitate communication and reduce potential conflict. Just remember that the SLA is a living document and it can be modified as to service expectations and responsibilities as circumstances change.